Residential Green Building: Identifying Latent Demand and Key Drivers for Sector Growth

Abstract

The residential green building movement is at an exciting moment in its development from a niche market to a more mainstream market segment. According to some predictions, in 2007, more than half of small and large home builders will be building at least 15% of their homes to a local, regional, or national green standard. With a variety of major firm- and market-level drivers of the green residential market, home builders and developers must thoroughly understand the characteristics and relative strengths of the green homes market within their operating locales. The purpose of this master’s project is to investigate and advance the foremost thinking in the residential green building industry. The project’s objective is to develop a strategic Market Engagement Framework (MEF) for examining a real estate market, so that a developer considering a local project can gauge consumer demand, understand the existing landscape, form partnerships for green building, and devise a marketing and sales strategy appropriate to the locale. The MEF contains two fundamental components: Analysis and Strategy. A building market is most ripe for increases in green building market penetration when numerous stakeholders push for those increases together. The three primary elements critical for growing a green homes market are (1) consumers, (2) industry (both for profit and non-profit organizations), and (3) government. A developer intending to compete in the residential green building space must have a comprehensive strategy designed to analyze and exploit the elements specific to the potential development’s location. To gain a comprehensive understanding of the marketplace and devise appropriate entry and marketing strategies, builders and developers must investigate all three of the aforementioned elements--consumers, industry, and government--in conjunction with the resource and economic pressures influencing the overall landscape. This project develops and presents the Market Metrics Lens (MML) as an evaluative tool to help confront the complexity that this investigation necessarily entails. By following a relatively simple prescriptive process, salient characteristics for each market element are identified and included as metrics in the MML. Once completed, this MML is able to identify strengths and weaknesses in a given market and in comparing one location to another. Furthermore, it helps identify specific partnership and marketing strategies to raise overall awareness and advance the industry. The MML was piloted in four different geographic locations: Los Angeles/southern California; Houston/Texas; Miami/South Florida; and Newark/northern New Jersey. In addition, four other markets were reviewed to add robustness to the comparison pool: Denver, Atlanta, Indianapolis, and Boston. Of the four focus municipalities, Los Angeles stands out as the strongest overall in its relative strength in all three key elements of a residential green building market. While the consumer and industry elements of Miami’s Residential Green Building: Identifying Latent Demand and Key Drivers for Sector Growth green residential market is relatively weak, the government element is relatively strong and growing. The industry element outside of the city, including a strong residential green building program and the support of a leading builder, is relatively strong. The consumer element of the Newark green residential market is relatively strong, while the government support element is moderate and the industry element is relatively weak. Other towns in northern New Jersey and the state government are making strong progress in green residential support. While Houston has a relatively strong industry element, it ranked weakest of the four focus municipalities in government and consumer elements. The “strategy” portion of the Market Engagement Framework includes two important aspects: (1) forging partnerships and alliances to help advance the overall industry and raise consumer awareness and (2) targeting purchasers of residential green homes through a focused sales and marketing effort. With the results of the MML, this project proposes specific strategies for partnership, marketing, and sales in each of the four focus geographies, as well as develops a number of green homes strategy best practices, including 12 techniques for selling green homes. While the residential green building market is rapidly growing and maturing, much remains to be understood about the dynamics of key market elements, the most likely buyer characteristics and preferences, and the most effective marketing and sales strategies. The MEF and MML presented in this project can help builders, developers, researchers, and other green residential stakeholders better understand and strategize for engagement in particular geographic markets.